Dell's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Dell (DELL)

Q4 2012 Earnings Call

February 21, 2012 5:00 pm ET

Executives

Robert Williams - Director of Investor Relations

Brian T. Gladden - Chief Financial Officer and Senior Vice President

Compare to:
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» Dell's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Stephen J. Felice - President, Chief Commercial Officer, President of Global Small & Medium Business and President of Consumer Small & Medium Business

Michael S. Dell - Founder, Chairman and Chief Executive Officer

Analysts

Mark A Moskowitz - JP Morgan Chase & Co, Research Division

Richard Gardner - Citigroup Inc, Research Division

Louis R. Miscioscia - Collins Stewart LLC, Research Division

Shannon S. Cross - Cross Research LLC

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Kulbinder Garcha - Crédit Suisse AG, Research Division

Maynard J. Um - UBS Investment Bank, Research Division

Brian Marshall - ISI Group Inc., Research Division

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good afternoon, and welcome to the Dell Inc. Fourth Quarter Fiscal Year 2012 Earnings Conference Call. I'd like to inform all participants this call is being recorded at the request of Dell. This broadcast is a copyrighted property of Dell Inc. Any rebroadcast of this information in whole or in part without the prior written permission of Dell Inc. is prohibited. As a reminder, Dell is also simulcasting this presentation with slides at www.dell.com/investor. [Operator Instructions]

I'd like to turn the call over to Rob Williams, Head of Investor Relations. Mr. Williams, you may begin.

Robert Williams

Thanks, Regina. With me today are Michael Dell, Brian Gladden and Steve Felice.

During Q4, we spoke with many of you about creating a more efficient earnings process. Based on that feedback, we are condensing our prepared comments and expanding our web deck. In Q1, we will add a key topics document. These materials, along with our DellShares VLog, will be distributed well in advance of the call, and I encourage you to review them for additional perspective.

Next, I'd like to remind you that all statements made during this call that relate to future results and events are forward-looking statements that are based on current expectations. Actual results and events could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties which are disclosed in our annual and quarterly SEC filings and in the cautionary statement in our press release and our web deck. We assume no obligation to update our forward-looking statements.

Please also note that we will be referring to non-GAAP financial measures, including non-GAAP gross margins, operating expenses, operating income, net income and earnings per share. Historical non-GAAP measures are reconciled to the most directly comparable GAAP measures in the web deck posted on the Investor Relations section at dell.com, and in our press release and 8-K filed today. I encourage you to review these documents. Please also note that unless otherwise mentioned, all growth percentages refer to year-over-year progress.

Now, I'll turn it over to Brian.

Brian T. Gladden

Thanks, Rob. The fiscal year 2012 was a strong year with great financial results for Dell. We also made important progress towards our key strategic initiatives. To highlight a few key examples, we continue to enhance our enterprise solutions capabilities by adding important intellectual property from acquired companies like SecureWorks, Compellent and Force10. We improved the cost position, execution and profitability of our client business, building on the success of the past 2 years. We strategically invested in data center capacity and solution center capabilities around the world. And finally, we significantly increased the number of solutions sales specialists and increased our enterprise R&D spending. These investments have helped to reshape our business and will do so over the long term.

For the year, consolidated revenue was $62.1 billion, and we delivered a record $18.6 billion in enterprise solutions and services revenue. This business now represents 30% of revenue and almost 50% of gross margin dollars. Consolidated operating income was 7.1% of revenue for the year, which is right on our long-term target. And cash flow from operations was $5.5 billion, up 39%.

From here, I'll refer to non-GAAP financial measures.

Our full year results were in line with the outlook we provided in our November earnings call. In addition, at the beginning of the year, we said we would grow operating income 6% to 12% and revenue 5% to 9%. Despite a challenging macro environment, we delivered 24% operating income growth and 1% growth in revenue.

We had record gross margin dollars, record operating income and record non-GAAP earnings per share of $2.13 per share, which was up 34%. While we're very pleased with our strategic progress and our total year financial results, we did expect to do a bit better. There were a few areas in the fourth quarter that negatively impacted our gross margins, and I want to address those now.

We called out the global hard drive situation as a challenge for the quarter, and while we were effective in shaping demand and pricing for hard drive cost increases, we were impacted by the available mix of drives. We prioritized high-end drives to relationship customers, resulting in a product mix that was less profitable than normal in Consumer and our after point-of-sale hard drive business. Second, we worked through the remaining inventory of our previous-generation phones, primarily impacting our Consumer business. And finally, our Public business growth was impacted by continued weakness in U.S. public spending, which did not improve during the quarter. This resulted in a more significant sequential decline and margin pressure than we would typically see in the business in the fourth quarter. These 3 areas combined negatively impacted us by about $100 million.

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